Monthly Archives: May 2016

Does the monsoon season effect planning of your finances? Does this question come as a surprise to you? Well, monsoon has a great deal of influence on equity portfolio. This year, experts feel, monsoon will have an effect in investing stocks.

The scanty monsoon during the last few years has affected agriculture adversely, but the hope that this year’s monsoon will be successful leads experts to think that the agriculture sector should do well.

Now look at how monsoon and crops affect the economy. A delay in rain will delay planting activities, in turn delaying the harvest. This will translate to smaller yield of food crops such as rice, wheat and sugarcane. Basic laws of economics tell you that the lower the supply of a commodity, the higher will be its price. So naturally, the next thing you will see is higher food prices.

The current level of inflation is 6.3% which is a remarkable improvement from the earlier years. But this figure is high since it exceeds the CPI (consumer price index). The RBI has been on its toes monitoring and controlling inflation. The RBI has also lowered the interest rates allowing businesses to borrow, which is good for the growth of the economy. A good monsoon helps borrowers pay back loans on time.

A bad monsoon results in a delay in payback of loans farmers to banks and non-banking finance corporations (NBFCs), a situation that would unduly stress the financial sector. A good monsoon on the other hand positively affects recovery and credit growth. Rural sales dominate growth in the fast moving consumer goods (FMCG) sector. A favorable monsoon can boost FMCG volume growth by 10-12 per cent, most of this impacting the sales of autos. In fact, two-wheeler and tractor sales volume can be affected by 15 per cent.

And then let’s not forget the dire effect that power cuts have on businesses. Production can be brought down significantly if not to a complete halt.

So, if monsoon is a criterion for investment, think of buying auto, agro-chemical, banks and NBFC stocks.

Too much diversity for your portfolio? Let’s pray to the Gods to bestow us with a good monsoon and also a good strategy to diversify risks.

Six domestic firms have been quizzed by the Income tax department about the source of funds that was raised as private equity (PE) money in the past few months. This, claims the IT department, is part of their investigation on black money and the department can seek information from the assesse.

The IT department also has rights to query the identity of the partners of the firm.

A sizeable chunk of domestic PE money is sourced from multiple tax jurisdictions overseas and is invested in unlisted Indian companies. The PE route cannot be used as a channel for round tripping. Round tripping is the term used when black money is routed back to its country of origin, passing it off as legitimate investments.

Fund managers are receiving queries about source of funds and the identity of company promoters in which the fund managers invest and their involvement in the so called fund managers firm.

India has received a record $22.4 billion in PE investments in 2015 and $2.3 billion in 2016 till March. LPs are individual and institutional investors who commit capital to a PE fund, which acts as a general partner or GP.

The Securities and Exchange Board of India last week stipulated that Indian “know your customer” norms would be applicable to all issuers of offshore derivative instruments including P-notes used by foreign investors to trade in listed securities of Indian companies.

There are constraints which need to be considered before deciding on which asset class one needs to opt for.

Liquidity constraints

Liquidity refers to the ability to turn investment assets into spendable cash in a short span of time without much loss. Liquidity is important when one has to meet medical expenses or for education. Liquidity is determined by looking at how soon the investment can be turned into cash. Investments in hedge funds and private equity funds are illiquid and hence cannot be taken out during emergencies.

Time constraints

The longer the investment time horizon, the more risk and less liquidity the investor can accept in the portfolio. The expected returns on a broad equities portfolio may not be too risky for an investor with a twenty year investment horizon. But if he has to fund a large purchase during the immediate year, this can be risky. Government securities or bank deposit may be the most appropriate investment for short term because of their low risk and high liquidity. While the investment in stock and bonds can be risky in the short run, time has a moderating effect on market risk.

Tax constraints

The tax treatment of various asset classes is a consideration in security selection and portfolio construction. Investors who are in the higher tax brackets may prefer tax-free bonds to taxable bonds or prefer equities that are expected to produce capital gains, which are often taxed at a lower rate than other types of income like dividends. There is certain investment like EPF which is tax exempt. So are some investments in equity fund, debt fund, arbitrage fund or gold fund. In a nut shell, the investors gain after tax and risk is considered to determine which the most lucrative investment is.

Legal constraints

Trust, corporate, and qualified institutional investors are restricted by law from investing in particular types of securities and assets. There are restrictions on percentage allocations to specific types of investments in such investors. In addition to financial market regulations that apply to all investors, more specific legal and regulatory constraints may apply to particular type of investor.

There are other criteria that are considered as well. Ethical preferences, such as prohibiting investment in securities issued by companies in the manufacturing or distribution of tobacco, alcohol, firearm producers and environmentally harmful products are not uncommon.

Restrictions on investments in companies or countries where human rights abuses are suspected or documented would also fall into this category. Religious preferences may preclude investment in securities that make explicit interest payments. Owners /founders of companies may not be interested in investing in the same company.

One can further divide equities by whether the issuing companies are domestic or foreign, large or small, or whether they are traded in emerging or developed markets.

Indiabulls Housing Finance Ltd has sealed one of the biggest transactions in the real estate sector in recent times by investing in the residential projects of Gurgaon-based developer M3M India Pvt Ltd. M3M has a major focus on Gurgaon. Its projects in the city include M3M Golf Estate, M3M Panorama Suites, M3M Polo Suites and M3M St Andrews.

The capital was disbursed over a period of time in a phased manner. The total deal value is in the range of Rs 1,200 crore ($177 million). The capital raised will be used for construction finance while a major portion has gone to fund the developer’s land purchase from Sahara Group.

M3M sealed a deal with Sahara Group to buy a 185-acre land parcel along Dwarka Expressway in Gurgaon for Rs 1,211 crore in 2014. It completed the transaction recently by depositing the last installment of about Rs 700 crore and is now planning to come up with a mixed-use development project.

Sahara Group has been selling its assets to raise funds for securing the release of its chief Subrata Roy who was sentenced in 2014 after the group failed to repay investors about Rs 36,000 crore it had raised illegally. There was a deposit Rs 5,000 crore and an equal amount in bank guarantee payable for his bail.

M3M, whose portfolio is skewed toward residential projects, is also in talks with a joint investment platform of Tata Realty Ltd and Standard Chartered for a deal for a commercial asset.

Debt transactions have dominated real estate investment in recent years with non-banking finance companies and private lenders betting big on the sector. Developers are increasingly raising debt capital to refinance existing loans and finish construction of projects. The sector attracted $727 million in the first three months of 2016, a majority of which was in the form of debt.

While commercial real estate has shown improvement in recent months, the residential segment continues to struggle due to sluggish sales and high inventory. However, recent quarters have seen some momentum with an uptick in sales, indicating a move toward a gradual revival.

Further to identifying 13 new smart cities for development, the Ministry of Urban development aims at a transformation which is more purposeful and holistic.

Smart parking facilities, CCTV surveillance, traffic management systems and rejuvenation of parks and public spaces seem to feature as top priorities. Others included integrated traffic management system, city surveillance, and smart bus shelters and unified smart mobility card. Certain cities have a proposal to monitor air pollution system.

Development has started to sprawl outside the cities. Peripheral towns and villages are in need for connectivity and infrastructure. Land use planning can avoid real estate and land scams. With all the change suggestions let’s assume that there will be less political tensions between the politicians and the corporators to implement these developments.

≈ Comments Off on Smart cities announced: Lucknow, Chandigarh in the list.

Lucknow, Faridabad, Dharmashala, Chandigarh, Raipur, New Town Kolkata, Panaji, Ranchi, Bhagalpur (in Bihar), and Warangal (in Telangana) are among the 13 new cities that have been selected under the Smart City scheme. Dehradun did not make it in the group. The other cities that made it to the list included Port Blair, Imphal and Agartala.
Earlier 20 cities were nominated for smart city development with a proposed investment of Rs 50560 crore. The 13 cities announced later has an investment of Rs 30,299.
The Ministry for Urban Development said that the cities selected in this round have improved their earlier plans in areas including better profiling of respective cities, ensuring consistency between citizens’ aspirations and action plans, more feasible resource mobilization plans and presenting a more coordinated and integrated picture of how individual projects will contribute to the area level changes. The cities that are not currently selected for development will have to revise their plans and submit them for evaluation for a competition held end of June.

≈ Comments Off on Clearance for construction – some insights on what they are

For a common man or a landowner, the process of approvals for a residential construction is unknown. They have no idea as to what these approvals mean – the only awareness is that a non-approved construction would attract penalty. Here are some insights on the approvals that are required to construct.

A clear title to the land is required, and hence charges and encumbrances to the land till the present status are traced to know the chain of holding, transfers, disputes and ownerships. These inputs are available at the local sub-registrar office. The builder either purchases the land or enters into a Joint Development Agreement.

Urbanization has led to agricultural land being converted to non-agricultural land for construction after approval from the local body and State Ministry of Urban Development. The land use plan is changed and marked accordingly by the state and local bodies.

The zoning approval from the local body is obtained after the revenue department provides ownership certificate for the building permit. The town planning authorities need to give a NOC before granting a zoning approval.

The next step involves submission and approval of building plan as per law, and once the plan is approved construction work should start within two years and there should be no deviations from the sanctioned plan.

The layout approval has to be obtained with FAR (Floor Area Ratio) and FSI (Floor Space Index). One cannot construct on unapproved layouts. Permission has to there for subdivision as well. The unapproved layouts may not have civic amenities and that will be a drawback.

The builder cannot lay a foundation stone or build boundaries of the property unless he has the commencement certificate and the building permit.

There has to be a NOC from the local bodies to obtain water, EB and sewage connection. Also and NOC has to be obtained from the pollution control board stating compliance to norms.

The local body forwards the proposals to the various other concerned authorities in the city as required for issue of case specific approvals/ NOC before granting Completion-cum-Occupancy Certificate.

Active systematic investment plans (SIP) in the mutual fund industry has touched an all-time high of one crore, with about 88.43 lakhs SIPs in the active portfolio. That’s a massive 35 per cent rise from 65.5 lakh recorded at the end of March 2016. A SIP is a mutual fund product where an investor – most often an individual – puts in the same amount of money in a particular MF plan every month, which is like saving money in a recurring bank deposit. SIPs are preferred by investors interested in buying stocks. Since the investment is less, it reduces uncertainties and averages out the investor’s cost of acquisition of fund units. Experts say that 44.87 lakh new SIPs were registered in 2016.

The increase in SIP is attributed to investor education about mutual funds especially in small towns. The monthly investment on SIP is Rs 3000 and investors are willing to wait it out. The investor education that was happening in the last 15 years has paid off- says experts. Of the total number of new SIP investors, 23 lakhs accounts represent new investors. Sometimes, an SIP may be rolled-over after its expiry. In this case, the SIP may be new but the investor remains the same.

SIP is becoming attractive since real estate is expensive and gold does not give immediate returns as expected. FDs do not yield much. SIP allows investors to have multiple portfolios. The increase in investor base into equity mutual funds is a positive development for the markets. Since markets have been rising, investors seem to have realised that they are missing out on a big opportunity. The trend of rise in new accounts in equity mutual fund is expected to accelerate as the increase is too small.

Property disputes are on the rise in Chennai, and experts attribute the cause to the spiraling land prices. There are quite a few disputes that culminate into brutal murders. Experts at IKIA feel that estate planning at the right time can solve many of these issues. A competitive consultant ensures that estate management is successful with minimal risk of negative consequences.

Land prices in Chennai are much less compared to that of Mumbai and Delhi. An experienced consultant will have the expertise to advice on taxes, legal as well as estate planning.

The most important duty of the citizen apart from the regular is also to elect the right Government who will ensure his protection. With elections on the anvil this is the right time to think about how to exercise the fundamental right.

Disputes occur not only in high profile cases but also among middle class citizens. Senior citizens are easy targets to these thugs and land grabbers and most times there is a strong political support as well. Murder is the last step resorted to when victims do not oblige to threats.

Many citizens defer estate planning to avoid the expenses incurred for the same. But experts at IKIA feel that portfolio management services and estate planning services will be valuable in order to carry out planning and management of wealth. A detailed research of the investment options available at right prices can provide valuable inputs as well. All this to have a peaceful time ahead of you!

The new Insolvency and Bankruptcy Code will improve environment for creditors, medium to long term, and effective implementation will remain the key. This will replace other laws applicable for insolvency and bankruptcy to allow faster resolution of corporate insolvency. It will also encourage funding options for corporates.

The bill proposes a 180 day frame work to recover bad debts, aiming at improving investor confidence. The bill was cleared by both houses of Parliament proving the Government’s urgency in in resolving bad debt resolution. The aim is to reduce time and cost related to litigation especially for the weaker credit profiles.

Banks stand to gain as recoveries will be timely and asset quality will improve. The setting up of the regulatory framework takes time. There are 70,000 liquidation cases pending in the National Company Law Tribunal and debt recovery tribunal.

The Government is keen to link capital allocation to bank performance on recoveries too. The new code covers all debtor categories including individuals, partnerships, limited liability partnerships and companies and prevents continuation of management in an insolvent firm and bars bankrupt individuals from either holding public office or contesting elections.